Questions And Answers About Rules Governing Park View Water Association
The following are answers to issues that have been raised concerning Park View Water Association operation. Our attorney Art Macomber of Macomber Law, PLLC provided answers and cited Idaho Law to help us make important decisions about our water system operation.
Please read the information. We will have to make some important decisions at our next annual meeting which will be held in April 2015. Meeting notices will be posted and mailed. Please plan on attending or sending your proxy so your voice will be heard.
Our Board of Directors posed these questions to the Association’s legal counsel, Macomber Law, PLLC, which supplied the answers according to Idaho Code and Park View Water Association governing documents.
Q-1: Can the owners of property whose use of their land is affected by the CC&Rs that were made with the original plat only agree to change the Park View Water Association (PVWA) governing documents?
A-1: Yes. The original plat-initiated CC&Rs are terminated by their own terms, and even if they were not there is no corporate entity responsible for their enforcement. If an owner felt the original plat-initiated CC&Rs were being violated, they would need to proceed individually against the alleged violator. The PVWA Board can put proposals before the members for changes to the PVWA governing documents.
Q-2: What is the process to lower the number of PVWA members needed to elect officers, directors, or to conduct business?
A-2: The process depends on whether you believe the PVWA has valid Bylaws. If the Bylaws are invalid, the association must use its Articles of Incorporation, and if those Articles do not address the matter, then Chapter 3 of Title 30 of Idaho Code governs the answer to the question. At least one member has contended that the Bylaws are invalid, and in order to settle a lawsuit the Board agreed with that member. However, no declaratory judgment has been filed with the First District Court to determine whether that member’s contentions are correct, or if the Board’s decision not to use the Bylaws is a valid decision. The answer to the question must account for these several unknowns -- which is a great reason to become involved to reform the governing documents.
Bylaws: The Bylaws dated April, 2013 use vague language to determine whether a quorum exists at a meeting of the membership. In Section 5 of Article III it states, “a quorum shall be defined as two-thirds of the owner-occupied members reasonably expected to be in attendance.” (Emphasis on vague language). It then sets the number for a quorum at six. Section 1 of Article III states the annual meeting of members is for “the purpose of electing directors and the transaction of such other business as may come before the meeting.” Business that came before the meeting could include lowering the number of members required to elect officers, directors, or to conduct business. Due to this vague language, I would recommend defaulting to the Articles, in order to avoid a challenge by a member if the quorum number of six is used.
Articles of Incorporation: The Articles of Incorporation for PVWA were signed on April 13, 1977. In answer to the question, Article XII states, “the number, qualification, terms of office, manner of election, powers and duties of such directors shall be such as may be prescribed by law, these Articles and such Bylaws as may from time to time be enforced.” Article XI allows Bylaws to “be adopted, altered, amended or repealed at any regular meeting of the members, by the affirmative vote of two-thirds of the members present at such meeting,” and allowing a quorum to be a majority of eligible
votes present through members and proxy. Due to the language of Article XII, and assuming the Bylaws will not be used, PVWA must answer the question “as may be prescribed by law,” in other words, Idaho Code.
Idaho Code § 30-3-49: Without a meeting: If 80% of members sign a consent to the action, which in this case is “to lower the number of PVWA members needed to elect officers, directors, or to conduct business.”
Idaho Code § 30-3-53(3): Action by Mailed Written Ballot: “Approval by written ballot alone pursuant to this section when a meeting is not held shall be valid only when the number of votes cast by ballot equals or exceeds the quorum required to be present at a meeting authorizing the action, and the number of approvals equals or exceeds the number of votes that would be required to approve the matter at a meeting at which the total number of votes cast was the same as the number of votes cast by ballot.”
Given this language, (A) what is a required number for a quorum, and (B) what is the number of votes required to approve a matter at a meeting under Idaho Code?
(A) Idaho Code § 30-3-56. Quorum requirements.
(1) Unless this act, the Articles or Bylaws provide for a higher or lower quorum, ten percent (10%) of the votes entitled to be cast on a matter must be represented in person, by proxy, by mailed written ballot or by absentee ballot at a meeting of members to constitute a quorum on that matter.
(2) A bylaw amendment to decrease the quorum for any member action may be approved by the members or, unless prohibited by the Bylaws, by the board.
(3) A bylaw amendment to increase the quorum required for any member action must be approved by the members.
(4) Unless one-third (1/3) or more of the voting power is present in person, by proxy, by mailed written ballot or by absentee ballot, the only matters that may be voted upon at an annual or regular meeting of members are those matters that are described in the meeting notice.
(B) Idaho Code § 30-3-57(1), in part, states, “if a quorum is present, the affirmative vote of the votes represented and voting, which affirmative votes also constitute a majority of the required quorum, is the act of the members.”
Q-3: Is it required in Idaho that the members elect the board and the board elect the officers?
A-3: Pursuant to Idaho Code § 30-3-66, which states in part: “. . . all the directors, except the initial directors, shall be elected at the first annual meeting of members, and at each annual meeting thereafter . . ..” Then, for the officers, “[u]nless otherwise provided in the Articles or bylaws, a corporation shall have a president, a secretary, a treasurer and such other officers as are appointed by the board. Except in the case of religious corporations, any two (2) or more offices may be held by the same person, except the offices of president and secretary.” I.C. § 30-3-83(1) (emphasis added for clarity)
Q-4: Are there other ways to elect the board and officers, when enough members are present?
A-4: Yes. Idaho Code § 30-3-66 states, in part, “. . . unless the Articles or bylaws provide some other time or method of election, or provide that some of the directors are appointed by some other person or designated.” In short, with Bylaws, PVWA could utilize any elective methods that were not in conflict with the Articles or Idaho Code.
Q-5: What are terms of office for board members and officers?
A-5: The Article XII of the Articles of Incorporations signed on April 13, 1977 states in pertinent part that “[t]he business of this Association shall be managed by a Board of Directors . . . the . . . terms of office . . . of such directors shall be such as may be prescribed by law, these Articles and such Bylaws as may from time to time be in force.” The Articles are otherwise silent on this issue. The Bylaws may or may not be valid, however, they do mirror the default provision in the Idaho Code on this issue.
Idaho Code § 30-3-67 states in pertinent part that “[i]n the absence of any term specified in the Articles or Bylaws, the term of each director shall be one (1) year.” Thus, pursuant to Idaho Code § 30-3-67 an elected director’s term expires at the next election of directors by members. Therefore, an elected director’s term typically expires yearly at the annual shareholders’ meeting, unless they have filled a vacancy part way through a term, in which case their term ends at the next meeting when an election by the members is held. This could be at the next annual shareholders’ meeting or at a special meeting. Additionally, under Idaho Code § 30-3-67, a director may continue to serve longer than his term until a successor is elected.
Q-6: How can we replace one (a director) due to a member moving, or from some other vacancy?
A-6: The Article XII of the Articles of Incorporations signed on April 13, 1977 states in pertinent part that “[t]he business of this Association shall be managed by a Board of Directors . . . the . . . manner of election . . . shall be such as may be prescribed by law, these Articles and such Bylaws as may from time to time be in force.”
Bylaws: The Article IV section 8 of the Bylaws dated April, 2013 states that “[a]ny vacancy occurring in the Board of Directors shall be filled by the Board until the next annual meeting of members or a special meeting of members called for the purpose of filling the vacancy. A Director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. Any directorship to be filled by reason of increase in the number of Directors shall be filled by vote of the members.”
Idaho Code § 30-3-72: Pursuant to Idaho Code section 30-372, a vacancy on the board may be filled by vote of the shareholders, or by the majority vote of the remaining board of directors, even if the vacancy resulted from an increase in the number of directors. In this case when the Bylaws are more restrictive, but still in compliance with Idaho statute, I would recommend that a vacancy resulting from an increase in the number of directors be filled by the vote of the members if possible. But where a vacancy is the result of a director moving from the association, it could be accomplished by a majority vote of the remaining board members, and such appointment would be effective until the next annual meeting of the members when a new director would be elected.
Q-7: Do called board meetings need to be announced to all Association Members or can just board members and officers be notified?
A-7: There is no requirement in the Articles of Incorporation, Bylaws, or Idaho Code that requires notice of board meetings be given to members.
The Articles of Incorporation dated April 13, 1977 are silent on this matter.
Bylaws: Bylaws Article IV section 5, which may or may not be valid, states that “Notice of any special meeting of the Board of Directors will be given at least three (3) days prior thereto by written notice delivered personally or sent by mail or telegram to each Director at this address as shown by the records of the Corporation.”
Idaho Code § 30-3-76: Idaho Code § 30-3-76(1) states that “Unless the Articles, Bylaws or subsection (3) of this section provided otherwise, regular meetings of the board may be held without notice.” Idaho Code § 30-3-76(2) states that “Unless the Articles, Bylaws or subsection (3) of this section provide otherwise, special meetings of the board must be preceded by at least two (2) days’ notice to each director of the date, time, and place, but not the purpose of the meeting.”
Thus, there is no requirement that notice be given to board members or members of the association for annual board meetings, and notice of special meetings must only be given to the board.
Nevertheless, I recommend giving at least three (3) days written notice to all board members of all meetings. However, no notification needs to be given to association members for board meetings.
Q-8: Does notification of a Board meeting need to be written or can our blog be used?
A-8: The Articles of Incorporation dated April, 2013 are silent on this matter.
Bylaws: Bylaws Article 5 section 5 requires that written notice be delivered personally or sent by mail or telegram to each Director at his address of record.
Idaho Code § 30-3-76: Idaho Code § 30-3-76 does not require notice to be given in writing. It only requires notice.
My recommendation, is to mail written notice to each board member to avoid any argument that notice was not given, and also avoid arguments related to the validity of the Bylaws.
Q-9: How can water fees be collected and enforced?
A-9: In Idaho, Park View has the same power and authority to collect fees, dues, and fines from its members as a homeowner’s association. This is because this water association falls within the definition of a homeowner’s association pursuant to Idaho Code 45-810(6). Section 45-810(6) states that the term:
“homeowner’s association” means any incorporated or unincorporated association:
(a) In which membership is based upon owning or possessing an interest in real property; and
(b) That has the authority, pursuant to recorded covenants, Bylaws or other governing instruments, to assess and record liens against the real property of its members.
In this instance, Park View is an incorporated association organized pursuant to Title 30 of Idaho Code. Membership is based upon owning or possessing an interest in real property served by the water systems of the corporation, because the membership in the water association is appurtenant to each parcel served with water. Park View has the authority to assess and record liens against the real property of its members pursuant to its Articles of Incorporation filed with the State of Idaho Secretary of State. Articles, Art. II § 2 & 4; I.C. § 45-810. Thus, it can assess dues and record liens against the real property to enforce delinquent assessments.
Q-10: Can the Board authorize the installation of a water shutoff valve to a particular property if a member has not made an effort to pay after being delinquent for a predetermined amount of time, and add the cost associated with installing the shutoff valve to the member's bill?
A-10: Yes. Article VII of the Articles of Incorporation dated April 13, 1977, states in pertinent part that “Assessments and charges of the corporation shall be made as to each improved property owned by a member and in the event of the failure of a member to pay assessments and charges, the corporation may suspend water service to such improved property during the time any assessment or charge is unpaid following due date thereof. Upon payment of any delinquent assessment or charge, together with a reasonable charge for terminating and restoring service, water service must be promptly restored.”
Bylaws: Bylaws Article X section 3 states that “The Board of Directors shall prescribe the method and manner of collection of assessments and charges, including termination of service upon delinquency, and charges for restoration of service upon payment of delinquency.” Section 2 of the same article states that “The assessments and charges levied by the Corporation shall be for the object and purposes set forth in Article III of the Articles of Incorporation . . . .”
Article III of the Articles of Incorporation dated April 13, 1997 states that “The objects and purpose for which this corporation is formed are as follows:” and section 2 of that Articles states “To supervise, manage, distribute, control, and supply water to the members of the corporation, and to acquire, maintain control, expand, improve and repair water sources and systems and conduct all business necessary or instrumental to the same.”
The Board does have the authority pursuant to Article III of the Articles of Incorporation to install a shutoff value on a members waterline because this activity is part of the purpose of the corporation to “supervise, manage, distribute, control and supply water to members of the corporation, and to acquire, maintain control, expand, improve . . .” the water system.
The more difficult question is whether a delinquent member can be charged for the costs of installing the shutoff valve when they have not paid their assessments. The critical language in Article VII is whether charging a delinquent member for the installation of a valve is “a reasonable charge for terminating or restoring service.” The answer will recognize this is a management decision by the Board. My legal opinion is that if the decision is reasonable a court would support that decision.
Q-11: If the answer to Q-10 above is no, what other recourse does the water association have, other than court or liens?
A-11: Probably no legal recourse. There may be social pressure, but sometimes the association will simply have to pay the cost of a lawsuit, which in most cases will be a Board members’ time for small claims, because the amount owed will be under $5,000.00. The sad truth is that some people need to be sued to force them to be accountable. This is why we have a judicial system. Use it.
Q-12: Concerning the PVWA blog at parkviewwaterassn.blogspot.com, are there any privacy concerns PVWA needs to be aware of to protect a member’s privacy?
A-12: In Idaho there are four categories of invasion of privacy. These four categories are:
1. Intrusion upon a person’s seclusion or solitude, or into his private affairs.
2. Public disclosure of embarrassing private facts about a person.
3. Publicity which places a person in a false light in the public eye.
4. Appropriation, for the advantage of another, of a person’s name or likeness
See Peterson v. Idaho First National Bank, 83 Idaho 578, 367 P.2d 284 (1961) (The Idaho Supreme Court adopted Dean Prosser’s approach to the tort of invasion of privacy in this case).
The two theories that may apply to the blog are numbers 2 and 3. Public disclosure of embarrassing private facts, and publicity which places a person in a false light in the public eye.
One is guilty of public disclosure of embarrassing private facts if:
1. The disclosure is to the public and not to a private individual;
2. The facts disclosed are private, and not public; and
3. The matter made public is one which would be offensive and objectionable to a reasonable man of ordinary sensibilities.
The crux of public disclosure of private facts is disclosing something that a person wishes to remain a secret.
As to the tort of publicity placing one in a false light in the public eye, it is publishing something to the public that is false, and which damages a person's personal feelings or dignity. This is as compared with defamation, which harms a person’s reputation.
The Board’s specific question is related to whether a person’s feelings would be hurt if their neighbors knew they were not paying for their water bill. In other words, would there be liability to the Board if it published on its blog a list of names of Park View residents that were not paying their bills. The difficulty here is that the information must be false, and so the question comes down to how often do you change your blog?
If someone is delinquent on their water bill, and their name gets posted on the blog as being delinquent, and then they come in at 4:45 p.m. on a Friday and pay off the overdue bill, does the blog have to reflect that payment immediately so that the information about the delinquent member on the blog is not false?
The answer is that the Board probably has a reasonable amount of time to update its blog related to the names of delinquent members, and whether that time period is 24 hours, 48 hours, or 72 hours, or more time or less time than any of those options is a matter that in Idaho court has not ruled upon.
In the end, officers and directors of Idaho non-profit corporations must discharge their duties pursuant to Idaho Code, which states they must discharge their duties:
(a) In good faith;
(b) With the care an ordinarily prudent person in a like position would exercise under similar circumstances; and
(c) In a manner the officer reasonably believes to be in the best interests of the corporation and its members, if any.
I.C. § 30-3-80 (directors); I.C. § 30-3-85 (officers). To avoid embarrassment, members should pay their bills when due, or discuss it with the Board when they are unable.
Q-13: To quell disagreements regarding lot lines and usage of the PVWA well parcel, can parts of that parcel be bought by an abutting owner or sold by PVWA, if all distances from the well required by Panhandle Health are maintained, and security fencing and current easements are maintained?
A-13: Yes. Pursuant to Idaho Code § 30-3-106 a corporation may sell, lease, or exchange its property. So long as the property is not vital to the operation of the association and does not substantially affect the existence and purpose of the association the “corporation may on the terms and conditions . . . determined by the board of directors . . . [s]ell, lease, or exchange . . . its property in the usual and regular course of its activities . . . on the terms and conditions and for the consideration determined by the board of directors.” I.C. § 30-3-106; Thorpe v. Cerbco, Inc., 676 A.2d 436 (Del. 1996); citing Gimbel v. Signal Cos., 316 A.2d 599 (Del.Ch.), aff’d, 316 A.2d 619 (Del.1974) (defining the test for what is the sale of assets in the regular course of business or not and whether shareholder approval is necessary).
This means that so long as the property is not vital to the association’s operations and existence, the Board may approve the transaction without approval from the members.
Q-14: Some members believe there are only the Articles of Incorporation for the Water Association, that there are no Rules and Regulations. Is it true there are only Articles of Incorporation or are those members incorrect?
A-14: The PVWA has rules and regulations that were created on May 1, 1977 by the first three directors of the corporation, Robin Wollan, Dorothy Wollan, and Gary Schneidmiller. They were authorized to create the rules and regulations by provisions of Article III of the Articles of Incorporation, at subsections two and four.
Subsection 2 of the articles is discussed in the third paragraph of answer number 10 above, and subsection 4 allows the Corporation “to perform any lawful act necessary to the acquisition, ownership, maintenance, and expansion of the water system or systems, and the distribution of water, and any other lawful act necessary or advisable in the furtherance of the Corporation.” This includes the creation of rules and regulations pertinent to the business of running the water system.
Q-15: What personal liabilities are there, if any, for PVWA officers in the execution of their duties?
A-15: There could be personal liability if the officer acts in bad faith or violates his duty of loyalty towards the association. Otherwise the officer has little or no liability for good faith decisions made within the scope of his powers as an officer and within the exercise of the officer’s honest business judgment made in an effort to promote the best interest of the association. See McCann v. McCann, 275 P.3d 824, 830 (2012) (applying the business judgment rule to directors).
Officers and directors of Idaho non-profit corporations must discharge their duties pursuant to Idaho Code, which states they must discharge their duties:
(a) In good faith;
(b) With the care an ordinarily prudent person in a like position would exercise under similar circumstances; and
(c) In a manner the officer reasonably believes to be in the best interests of the corporation and its members, if any.
I.C. § 30-3-80 (directors); I.C. § 30-3-85 (officers). Most of these duties result in little or no liability because of a doctrine called the business judgment rule. The business judgment rule will shield officers and directors from liability resulting from decisions that later prove to be poor business decisions so long as the process in making the decisions was sound. The process would be considered sound if the officer considered all of the available information, and then made a reasonable good faith effort to act in the best interest of the association.
Idaho Code § 30-3-88: Idaho Code § 30-3-88(3) entitles a director, officer, agent, or employee of the association to be indemnified against expenses, including attorneys’ when the individual has been successful on the merits of a case brought against him/her when he/she acted in good faith and in a manner reasonably believed to be in the best interests of the corporation and when he/she had no reason to believe his/her acts were unlawful. This indemnification, however, may not apply if the person was found to be negligent, unless a court specifically determines he/she is entitled to indemnification.
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NOTICE: This document was created for the Board of Directors of the Park View Water Association, Inc. to address questions related to governance of that non-profit corporation. The law firm providing the above answers, Macomber Law, PLLC is legal counsel to the non-profit corporation through its Board of Directors. The corporation’s law firm is not empowered to give legal advice to individual members of that non-profit corporation, and they are encouraged to seek their own legal counsel on matters related to these questions should they dispute or have questions about the answers found within this document.
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